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Got Cloud? Optimizing Your New Cloud Portfolio To Mitigate Your Risks August 6, 2013 Brian Walker Kenneth A. Adler Managing Director, Partner and Chair, Technology and Shared Services and Outsourcing Practice Group Outsourcing Advisory Loeb & Loeb LLP KPMG
Presenter � Brian is a leader in KPMG’s Advisory Services practice with 25 years of experience in IT operations, outsourcing, and consulting. He has managed major transformational programs as a senior client executive, as an outsourcing executive, and as a consultant. � His core focus areas include strategy formulation, transformational leadership, outsourcing deal formulation/remediation, and steady- state operational optimization. Managing Director KPMG 3 3
Presenter � Kenneth A. Adler specializes in complex global and domestic outsourcing and technology transactions. With more than 25 years of experience, his practice includes drafting and negotiating all types of outsourcing and technology agreements, including business process and information technology outsourcings. He has significant experience addressing the creation of, and strategies relating to, cloud computing, multi-sourced environments, as well as renegotiation and termination of existing outsourcing and IT related agreements. Ken is recognized in leading legal directories as one of the foremost attorneys in the areas of outsourcing and information Partner technology. Among his many accolades, Ken has been cited for Loeb & Loeb excellence in the law by The Best Lawyers in America , The Legal him as "a remarkable lawyer at the helm of a great team ” , as well as 500 US , Chambers Global , and Chambers USA , which recognized having “ an encyclopedic knowledge of the industry – if you are doing something he has seen it. ” 4 4
Evolution of IT Service Portfolios 5 5
Evolution of Existing IT Service Portfolios IT Portfolios are Fragmenting 1960 1970 1980 1990 2000 2010 2020 Cloud Services 1960s to 1980s: Single Provider…IT � Focus: initial technology exploration, development Traditional Outsourcing � Major development, custom solutions Internal IT � External services limited to projects 6 6
Evolution of Existing IT Service Portfolios IT Portfolios are Fragmenting 1960 1970 1980 1990 2000 2010 2020 Cloud Services 1980s to 2000s: Outsourcing Boom • Large deals Traditional Outsourcing • Single providers Internal IT • Large scope areas • Long-term deals (7-10 years) 7
Evolution of Existing IT Service Portfolios IT Portfolios are Fragmenting 1960 1970 1980 1990 2000 2010 2020 Cloud Services 2000s to Present: Cloud � Everything “as a service” Traditional Outsourcing � BYOD Internal IT � Smart phones / Tablets � “Apps” � Traditional outsourcing squeezed: shorter deals, narrower scope, increased commoditization pressure from XaaS 8 8
Evolution of Existing IT Service Portfolios IT Portfolios are Fragmenting � BYOD enabled in some form by 89% of organizations (Cisco) � U.S. smartphone market 1Q13 ~ 137 million users (IDC) � Average number of connected devices per user is now 2.8, up 22% in just two years (Cisco) � Millions of users : SalesForce.com ~ 3, 2000 2010 2020 SuccessFactors ~ 9, Taleo ~20 (Morgan Stanley Research) � Amazon Web Services managed 905 billion objects 1Q12, up from 3 billion 4Q06 (Industry reports) Cloud Services Traditional Outsourcing � Sales of servers for on-premise deployment historically grew at +/- 20% YOY up until 2010. In Internal IT 2012, it was 0% (Morgan Stanley Research) � SaaS adoption is projected to grow at 50% CAGR between 2010 and 2014 (Morgan Stanley Research) 9 9
Service Integration Emerges and Related Implications 10 10
Fragmentation Demands Rigorous Orchestration Orchestration Complexity Portfolio complexity increases Connections exponentially as new suppliers are added Suppliers 11
Operating Models Are dEvolving Rapidly Increasingly decentralized, disaggregated, heterogeneous Illustrative 12
Operating Models Are dEvolving Rapidly Increasingly decentralized, disaggregated, heterogeneous Illustrative 13
14 Emergence of Orchestration Services Bringing Order Service Integration Governance As A Service Engineering As A Service
Orchestration Services: Market Examples Robust integration capabilities are becoming critical Governance Engineering As A Service As A Service Service Integration • Extension of Service • Extension of Vendor • Extension of Architecture & Alignment Delivery team Governance capability Engineering teams • Deep expertise, tools, • Single point of contact, insights for overseeing a • Technical design responsible for coordinating portfolio of service underlying services • Project SME providers Responsibilities • Often combined with • Project execution & • Invoice / SLA verification, service desk, but becoming leadership governance meetings, more stand-alone issue resolution • Long-term contract • Long-term contract • Named Resources on-site, • Committed staffing/spend • Long-term contract augmented by remote Engagement levels services • Operational SLAs • Subset of Named • Deep expertise & client Resources intimacy 15
Contracting Implications and Best Practices 16 16
Increase in Cloud-based XaaS Offerings and Associated Risks � Increase in Cloud-based offerings – SaaS, PaaS and IaaS – Pure play cloud – Hybrid cloud – Traditional service provider cloud offerings � Increase in Industry Specific Cloud Offerings – Healthcare, Financial Services, HR � Greater adoption for the enterprise � Cloud provider risk profile ≠ enterprise risk profile – Commodity offering v. integrated services 17 17
Effect on Existing Contracts and Contracting Models � Cloud-based services added to existing transactions – Technology improvements – Cost savings opportunities � Disaggregation of service scope � Best of breed solutions � Shorter term transactions � Varied models of partnering/subcontracting for service delivery 18 18
Cloud Portfolio Lessons Learned � Demarcation of service scope – Not end-to-end – Demarcation of customer retained scope – Demarcation of third party supplier scope � No consistency on contract terms � Form contracts are immature � New entrants not accustomed to dealing with the “enterprise” concerns � Suppliers view offerings as “commodity” � Suppliers subcontract/outsource key portions of their solutions � New entrants/financial and operational considerations 19 19
Common Risks Across Cloud Transactions � Data ownership and use � Data security � Compliance requirements � Supplier ongoing viability – Sunsetting/replacement of service offering � Integration with changing enterprise IT environment � Disaster Recovery/Business Continuity � Termination rights � Remedies for service failures � Disentanglement 20 20
Establishing Robust Standards for the Various XaaS Services � Consistency: – Contract terms – Policies/processes – Compliance requirements – Governance � Requires buy in/participation from: – IT – IT Security – Sourcing – Compliance – Finance – Legal – Business/Sponsors 21 21
Proactively Deploy Contract Terms � Create XaaS template agreements � Conform terms to enterprise forms/customer concerns � Address key cloud risk issues � Obtain input from all applicable SMEs � Consider back-up positions/playbook � Train negotiators how to use template agreements 22 22
Proactively Deploy Policies/Procedures � Enterprise IT Cloud Policies � Data security requirements � Privacy guardrails � Outsourcing requirements (as applicable) � Procedures to address concerns/exceptions � Define roles/responsibilities 23 23
Proactively Address Compliance Issues � Involve key SMEs � Establish compliance requirements/prohibitions � Develop integrated contract language � Address ongoing compliance responsibilities/roles � Ensure audit rights are addressed – Internal – External – Governmental authority � Schedule periodic meetings 24 24
Proactively Address Governance � Establish standard governance models – Vary for type of cloud service involved – Simple structure for SaaS – More robust structure for IaaS � Ability to manage across transactions � Ability to manage across suppliers � Consider enterprise level governance 25 25
Takeaways 26 26
Contact Information Brian Walker Managing Director, Services and Outsourcing Advisory KPMG brianwalker@kpmg.com 214.840.8162 Kenneth A. Adler Partner and Chair, Technology & Outsourcing Practice Group Loeb & Loeb LLP kadler@loeb.com 212.407.4284
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